APPEAL from a judgment of the Superior Court of Los Angeles County, Ann I. Jones, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC351374).
The opinion of the court was delivered by: Suzukawa, J.
CERTIFIED FOR PUBLICATION
Respondent Los Angeles Unified School District (the District) acquired by eminent domain property on which appellants Rudy and Teresa Casasola (the Casasolas) operated a small business. The Casasolas relocated their business to a new, larger property and spent nearly $1.4 million moving their equipment and repurposing the new property to accommodate their business. They then sought reimbursement from the District for their relocation expenses. The District paid the Casasolas $224,252 in moving and reestablishment expenses, but rejected the remainder of the claim.
The Casasolas challenge this determination on appeal, contending that their reasonable relocation expenses are reimbursable as expenses incurred to mitigate loss of business goodwill. They also challenge the trial court's award to the District of $180,000 in penalties, contending that the penalties are unconscionable. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Eminent Domain Complaint
The Casasolas are the owners of a catering truck supply company (referred to as Rudy's Wholesale or Western Catering). Until October 2007, the catering supply company was located on the 4600 block of Western Avenue in Los Angeles (the property or the Western Avenue property).
On April 26, 2006, the District filed an eminent domain complaint seeking to condemn the property. The Casasolas answered, claiming, among other things, the right to compensation for loss of business goodwill under Code of Civil Procedure section 1263.510 (section 1263.510).
II. The Casasolas' Purchase of Replacement Property and Their Attempts to Vacate the Western Avenue Property*fn1
The Casasolas purchased a replacement property located at 6236 South St. Andrews Place (the St. Andrews property). The St. Andrews property was much larger than the Western Avenue property, and it required considerable reconfiguration to accommodate the Casasolas' catering business.*fn2 The Casasolas had difficulty getting the work permitted and completed, and they repeatedly requested additional time to remain on the property.
On August 30, 2007, the parties signed a stipulation giving the Casasolas until September 4 to vacate the property (the August 30 stipulation). In relevant part, the stipulation provided: "Casasola may continue to occupy its premises at the Subject Property until no later than 7:00 a.m. on September 4, 2007, on the terms and conditions set forth herein. District will not enforce the Order for Prejudgment Possession as against Casasola until such time and date provided that Casasola has complied with the terms of this Stipulation. Casasola stipulates it will not move to stay the Order. [Handwritten:] However, Casasola may stay until September 9, 2007, but $5,000 shall be deducted from the compensation paid by District to Casasola for each day (or partial day) Casasola remains on the property after September 4, 2007."
In mid-September 2007, the Casasolas asked for additional time to vacate the property because the work on the St. Andrews property was not yet complete. They also asked the District to waive the $5,000 per day penalty imposed under the August 30 stipulation. On September 21, 2007, district relocation program manager Mort Bernstein and relocation specialist Mary O'Toole met with the Casasolas and told them that the District would be willing to forgive the $5,000 per day penalty if the Casasolas agreed to vacate the property by September 30, 2007. The Casasolas agreed to do so.
On September 28, 2007, the Casasolas contacted O'Toole and asked to remain on the property after September 30. The District refused the request. At the end of the day on September 28, Mr. Casasola told O'Toole that he would tell his drivers that the business would be closed as of September 30, and that O'Toole could pick up the keys to the premises on Monday, October 1. O'Toole reminded the Casasolas that if they did not vacate the property by September 30, "the verbal agreement was null and void."
The Casasolas did not vacate the property on September 30 as agreed. They remained in possession of the property until October 10, when they finally relinquished the keys to O'Toole.
III. The Casasolas' Mitigation Claim
The Casasolas filed a "Statement Regarding Expense of Mitigation to Avoid Loss of Business Goodwill" (Mitigation Statement) on May 12, 2008. They asserted that a displaced property owner must take steps to mitigate losses, including loss of goodwill, pursuant to section 1263.510, and that expenses associated with mitigation are compensable as lost goodwill pursuant to People ex rel. Dept. of Transportation v. Muller (1984) 36 Cal.3d 263 (Muller) and Redevelopment Agency v. Arvey Corp. (1992) 3 Cal.App.4th 1357 (Arvey). Accordingly, the Casasolas asserted that they were entitled to be reimbursed for the following mitigation expenses incurred in connection with repurposing the St. Andrews property for their catering business (rounded to the nearest dollar):
Professional consulting fees:$216,127
Architectural plans (Marta Perlas):$32,465
Electrician (Stephan Jones):$69,330
General contractor (Isaac Carvajal):$243,900
Survey plans (RS Engineering):$9,400
Roofing (Millenium Roofing):$21,500
Plumbing (K Plumbing):$96,008
Tile (Manuel Morones):$36,069
Architect (MVA Architects):$79,717
Plumbing (Manuel Chamul Plumbing):$43,798
Office finishing (Cristopher Gutierrez):$27,227
Refrigeration (Rite MP Refrigeration):$20,000
Elevator (Metropolitan Elevator):$15,000
APS Refrigeration Cold Container:$6,789
DWP License Fee:$7,354
Engineering (R.P.M. Engineering):$2,060
Counter work (Erick Sologaitoa):$7,000
Alarm system (ADT Security):$8,000
Of these alleged mitigation expenses, the Casasolas asserted that the District had paid or agreed to reimburse them for $213,252 in "moving expenses," $10,000 in "reestablishment expenses," and $1,000 in "searching expenses." Further, the District had disallowed $470,010, which it categorized as unreimbursable reestablishment expenses. The Casasolas did not discuss the status of the remaining $661,011 in unpaid claims. The Casasolas claimed that all expenses for which the District had not reimbursed them or agreed to reimburse them (i.e., the $470,010 in disallowed claims and the $661,011 in claims not yet acted upon) were compensable as expenses to mitigate loss of goodwill.
IV. The District's Motion to Exclude Evidence of the Casasolas' Claimed Mitigation Expenses
On June 27, 2008, the District filed a "Motion for Determination of Admissibility/Compensability of Mitigation Expenses in an Eminent Domain Action." The District asserted that the Casasolas should not be permitted to testify at trial about the sums they had expended to re-establish their business at the St. Andrews property because: (1) they were entitled under section 1263.510 to be compensated for lost goodwill, but not for "mitigation expenses," i.e., expenses to mitigate loss of goodwill; (2) the Casasolas' claimed mitigation expenses exceeded by more than $1 million the potential losses they sought to mitigate;*fn4 (3) relocation expenses are compensable in a separate administrative proceeding, not in an eminent domain action; and (4) permitting evidence of the Casasolas' claimed mitigation expenses would be time consuming and prejudicial.
The Casasolas opposed the motion. They contended: (1) California law recognizes the right to recover mitigation costs in eminent domain cases; (2) mitigation costs are compensable even when mitigation efforts do not succeed; (3) the burden of proving lack of reasonableness is on the party causing the damage, not the property owner; (4) mitigation costs are reimbursable even if they exceed the damages prevented or reasonably anticipated; (5) they were not seeking a double recovery because they were "not seeking to recover benefits that could be awarded under the relocation regulations. The School District has denied their request for reimbursement of these costs under those regulations."
The trial court granted the motion to exclude evidence of relocation expenses. It said: "[T]o the extent that [the Casasolas] expended extraordinary amounts of money in obtaining and having alternative locations, those are not compensable, as they are relocation expenses, not an adequate measure of goodwill, not a goodwill aspect that was contemplated in any way, shape or form by even accepting the high number of goodwill of . . . $126,000. Even if I deemed it to be some sort of a number that should be considered[,] . . . it would have been wholly irrational for someone to spend a million dollars to save a business worth $126,000. More significantly and importantly, if you look at what elements of damages are allowed to be claimed, that type of expense is separately compensable under an entirely separate statutory scheme but not under the law of eminent domain. The cases on which Mr. Casasola relies really are distinguishable, because to the extent a mitigation expense is considered at all, it's really considered as part of a computation of goodwill discount, but that was not in fact done in this case, nor properly could it have been."
The court continued: "Where you have a business with $125,000 of goodwill that has been operating out of a 6,000 square foot location . . . it strains credulity [to spend a million-plus to preserve goodwill] because . . . honestly, no rational economic actor would continue to operate a business. If I have to spend a million-two to save $126,000, I close down and I say my goodwill is my goodwill, the value of my business is the value of my business, pay me, case closed. But imagine there is a premium that can be extracted for saving what is otherwise a non-economic decision under the guise of goodwill, I think, as a matter of law, [that] is impermissible."
The court concluded: "I'm going to preclude from admission in the jury trial the evidence of just compensation set forth in exhibit 1C attached to the plaintiff's motion. These expenses are not legally cognizable under [section] 126[3.]510 as a component of lost goodwill. Plaintiff's own estimate of goodwill is less than $130,000. [The] [c]court finds as a matter of law, as I think the court is required to do, that a reasonably prudent person would not have undertaken expenses in excess of 1.4 million in preserving that goodwill. That is subpart (a)(2) of that same section. These are relocation expenses for which reimbursement may be sought under the Government Code once plaintiff's administrative remedies have been exhausted."
V. The Partial Settlement Agreement
On September 19, 2008, the parties filed a "Stipulation Re: Agreed Upon and Reserved Issues" (partial settlement agreement). It provided as follows:
(1) "[T]he parties have agreed to settle the fair market value of the real estate for $1,259,000, the fair market value of the improvements pertaining to realty for $276,091, and the fair market value of the loss of goodwill for $63,000, for an aggregate sum of $1,598,091, upon which the Casasolas will be entitled to statutory interest and costs. The sums already released from the court deposit to, or for the benefit of, the Casasolas in the amount of $1,442,557 shall be credited against the agreed upon settlement amount."
(2) "Three reserved issues are not included in this settlement. First, [the District] specifically reserves its rights pursuant to the Stipulation Re: Possession, Removal of Items and Writ of Assistance on file herein. . . . [¶] . . . [¶] Second, [the] Casasolas specifically reserve the right to pursue additional relocation benefits, if any, separately from this eminent domain action. The sums paid to the Casasolas for relocation thus far shall not be credited against the settlement sum outlined above. [¶] Third, the Casasolas reserve the right to appeal from the judgment to be entered herein, based upon the July 23, 2008 ruling by this court regarding the claims the Casasolas refer to as mitigation/goodwill."
The Casasolas filed a "Trial Brief on Penalty Issues and Jury Trial of Penalty Issues" on September 24, 2008. They asserted that the District was attempting to enforce the penalty provision in the August 30 stipulation by deducting from the Casasolas' eminent domain compensation the $5,000 per day penalty the District claimed the Casasolas owed them. The Casasolas asserted that this was improper because the District had waived the penalty or was estopped to assert it, and the penalty was unreasonable, unconscionable, and contrary to public policy.
The District filed a responsive brief on September 26, 2008. It contended that it had not waived the penalty, the stipulation was not unconscionable, and the issue should be tried to the court, not a jury.
The parties tried the reserved issues to the court on January 5, 2009.*fn5 On January 6, 2009, the court awarded the District $180,000, representing a penalty of $5,000 per day for 36 days.
In its proposed statement of decision, the court found that in August 2007, the District had advised the Casasolas that it could no longer grant any further requests to remain on the property and that it required possession by no later than September 4, 2007. Following further discussion, the parties entered into a stipulation on a number of issues, including an agreement that the Casasolas would vacate the property no later than September 4, 2007. As handwritten in by the Casasolas' counsel, if the Casasolas remained on the property after September 4, they would be required to pay a daily charge of $5,000, until September 9, 2007, when they were to be off the property.
"After the parties entered into the stipulation, the credible testimony of Mary O'Toole established that the defendants were unable to vacate the premises by September 4, 2007. O'Toole further credibly testified that Mrs. Casasola contacted her to see if it would be possible to negotiate a further extension of the time in which defendants could move from the subject property. O'Toole and Bernstein credibly testified that the defendants' request was discussed and that a decision by the District was made to allow the defendants to leave on September 30, 2007 and to allow the daily rent of $5,000 to be waived, if the defendants were moved from the subject property on or before September 30, 2007. O'Toole further credibly testified that no further offers or promises were made by the District to the defendants.
"Defendants' testimony that they were promised that nothing would be done were they to vacate the premises in October was wholly not credible. The defendants' testimony was vague. Neither [was] able to recall critical events and their demeanor during their testimony supports the court's conclusion that their statements are lacking in veracity. In addition, critical portions of Mr. Casasola's testimony regarding the district's actions directly contradicted his prior sworn declarations.
"Corroborating O'Toole's version of events is the District's own contemporaneous conduct to ensure the removal of defendants from the subject property. In October, the Sheriff posted the Writ of Assistance on the subject property and scheduled the defendants' eviction for October 11, 2007. Notified of the impending eviction, the defendants left the subject property on October 10, 2007.
"It is uncontroverted that the defendants did not vacate the subject property on or before September 30, 2007. Accordingly, the condition precedent to the oral modification of the parties' stipulation, i.e., that the defendants would vacate the subject property by no later than September 30, 2007, was not met. Accordingly, as the condition precedent was not satisfied, the oral modification of the parties' previous stipulation has no legal force or effect.
"Nor does the District's effort to accommodate the Casasola[s] by extending a conditional extension constitute a waiver. There is nothing in the record to suggest that the District ever offered or agreed to waive the penalty, even if the Casasolas remained after September 30th.
"Under the original stipulation, the defendants were required to pay $5,000 per day for every day that they remained at the subject premises after September 4, 2007. It is uncontroverted that the defendants remained on the premises for 36 days after September 4, 2007. Under the express, obvious and clear terms of the parties' own agreement, the defendants are required to pay the District $180,000.
"This amount is to be deducted from any compensation paid by the District to the defendants. The term 'compensation,' as used by defendants' counsel's handwritten amendments to the original proposed stipulation, is not further defined or specified. There can be no estoppel where the District's only conduct was to defer payment until the underlying dispute regarding the parties' obligations under the stipulation could be resolved. The District's decision not to take unilateral action to ...